Li Jin
This post was originally published by a16z.com.
The Passion Economy is growing by the day. From writers launching newsletters on Substack to influencers-turned-designers on Pietra, more people are taking advantage of digital platforms to make money off their unique skills. According to a study of nine digital platforms (including Etsy, YouTube, and Twitch), 17 million Americans earned nearly $7 billion in income from their independent creations in 2017.
As a creator, measuring success—in the form of followers, revenue, or subscriber growth—is relatively straightforward. But what if you’re a startup building a platform that enables people to teach virtual courses, build online communities, or receive fan funding for creative work?
The most important metrics for ad-supported startups relate to scale and user data—number of logged-in users, the frequency of visits, and time spent—the better to sell and target ads. But when creators are earning income directly from fans, rather than through ads or sponsored posts, another set of metrics emerges.
Because every tech platform is different, there are no comprehensive, one-size-fits-all metrics for the creator economy. But this list serves as a starting point for startups to more accurately track the performance and health of their businesses.
Tracking the Passion Economy
1. Success metrics
2. Revenue metrics
3. Engagement metrics
4. Growth metrics
5. Community-related metrics
Success Metrics
Success metrics are a measure of whether creators are obtaining value from a platform. For Passion Economy companies, that’s tied to earning revenue.
1. Conversion of free fans to supporters and subscribers
Passion Economy creators often utilize free distribution platforms—such as Facebook, Instagram, YouTube, or free podcasts and newsletters—to grow their audience, then convert some of those free users to paying customers. Platforms that support the monetization of fans include paid course startups Kajabi, Teachable, and Podia; membership platforms like Patreon and Buy Me A Coffee; and community platforms like Mighty Networks.
Measuring the conversion rate of free users to purchasers or subscribers tells you how effectively your platform allows creators to monetize their audience. On its own, this metric tells a partial story—whether it’s low or high doesn’t necessarily indicate anything about the health of the business. Some creators may want to monetize a smaller portion of their audience at higher dollar amounts, while other creators may want to monetize a larger portion of their audience at low dollar values.
2. Total creators with sales (cumulative and in a given time frame)
Total cumulative creators with sales is a measure of overall platform health. In addition, this metric should also be tracked for given time periods: creators with sales in a single week or month measures activation.
Most Passion Economy platforms let creators decide whether to offer something for free or charge users for it. For instance, Substack newsletter writers can opt to make their newsletters free or subscription-based. Since the business model of many Passion Economy platforms is taking a percentage of creators’ revenue or charging a SaaS fee, it’s important to track how many creators are actually earning revenue. Those who earn revenue are also more likely to stick with the platform, since they’re getting tangible value. To that end, another metric we’ve tracked is time to first sale—the idea being that the sooner a creator sees a sale, the more likely they are to see the value of the platform and continue using it.
3. Creators who have reached a certain revenue threshold
Measuring creators who earn over a certain amount of revenue is a way to assess how important your platform is as a source of earnings. The particular dollar threshold varies by platform and type of work—I’ve seen it range from $10,000 to $100,000 per year—but should represent a substantive amount of earnings to your creators. After all, the goal of Passion Economy platforms is to enable individuals to monetize their creativity and skills; measuring the number of creators who are making more than $X per year quantifies this impact.
Patreon has a KPI called “1K creators,” or creators who are making at least $1,000 per month from patrons. This is also a success metric that Amazon has used for sellers on its third-party marketplace.
“Entrepreneurs and small business owners are succeeding on Amazon – they sell half the products that Amazon customers buy, and more than 140,000 small and medium-sized businesses surpassed $100,000 in sales on Amazon in 2017.” —Peter Faricy, former VP of Amazon Marketplace
Revenue Metrics
These metrics help startups understand the volume and predictability of user demand for whatever creators are selling.
4. Gross transaction value or gross subscription value
This is the total transaction volume flowing through your system (commonly referred to as gross merchandise volume, or GMV). It’s a measure of the total user demand.
GTV can also be a driver of revenue if the business model charges a payments processing fee or other take rate. For example, Shopify’s major source of profitability isn’t SaaS, but payments revenue through Shopify Payments. Similarly, Teachable’s Payments business has grown to comprise one-third of the company’s revenue.
5. Monthly recurring revenue (MRR) and annual recurring revenue (ARR)
We see two predominant business models in the Passion Economy: SaaS or a take rate of creator revenue (GTV).
For platforms that monetize through SaaS, what MRR and ARR is the company generating from creators? There are a lot of sub-metrics important to SaaS business models, like new MRR, expansion MRR, and churned MRR—we recommend that SaaS companies serving creators track these rates, as well.
6. Average selling price (ASP)
Average selling price determines whether a creator needs 1,000 True Fans or just 100.
In 2017, Patreon’s average fan paid $12 each month to creators. With smaller dollar values, creators need many more fans in order to make substantive income; on the flip side, there’s less effort required of creators to maintain a lower-priced offering. By contrast, creators that charge a higher ASP can support themselves on a smaller number of fans, but they also need to justify the price by offering a product or service with greater value. Some creators on Patreon that charge much more—for example, the hosts of the humor podcast This Might Get Weird offer a $500 tier includes a personal coaching session every quarter.
7. Share and sources of earnings
The nature of the Passion Economy today is that platforms—and thus creator earnings—are fragmented. Creators often cobble together various sources of revenue from different platforms. They might use certain horizontal social platforms for marketing, distribution, and potentially sponsorship revenue; another platform for monetizing through donations; and another for paid courses and personalized videos.
Though challenging to assess, it’s useful to understand how much your creators are earning in total vs. from your platform alone. Measuring this could take the form of surveying creators about their sources of revenue. In other words, how indispensable is your platform in supporting the creator’s business?
8. Revenue retention (creators & audience)
This metric is also borrowed from the SaaS world: of users who purchase, how does their spending in month 6 or 12 compared with month 1? Is the user spending more over time?
On the creator side, what is GMV retention? Ideally, you’d want to see that creators are earning more over time on your platform—thus, becoming more successful and active.
Engagement Metrics
Like ad-driven platforms, engagement metrics matter for the Passion Economy, but for a different reason: engagement is a leading indicator for whether users have a high propensity to convert to purchase—as well as whether creators will stick around.
9. Fan engagement rate
Measuring engagement with content can be a leading indicator for subscription retention. For instance, for newsletters in all industries, the average unique open rate is 21 percent. Massive open online courses (MOOCs) have an average completion rate of 5 to 15 percent. For paid versions of these formats, where fans are directly paying a creator, ideally engagement should be higher.
10. Loyalty and retention of fans
The nature of fan support can vary widely: they may be lifelong customers, or only pay during a set timeframe or program. There will always be some churn among fans, as users may decide to cancel their subscriptions and creators may decide to stop using the service. Even the best subscription businesses have churn. For comparison’s sake, about two-thirds of Netflix’s monthly-paying customers are still subscribed 12 months after first signing up, according to Second Measure. For Hulu, 53 percent of customers remain 12 months after joining.
Diagnosing user churn is important: it could be that creators aren’t producing content with the frequency that their subscribers expect. If churn is high, it might benefit your business to provide guidance for creators on best practices. Alternatively, perhaps the product itself needs to be tweaked in order to facilitate ongoing, rather than one-time, value.
11. Creator retention and churn
It’s equally important to measure how many creators continue to use the platform and make sales. Depending on how the platform works, creator churn could be measured as creators who are turning off monetization, inactive, or leaving the platform altogether.
The next step is to dig into reasons for churning. Are creators switching to a different SaaS platform, perhaps one that has more features or that charges a lower rate? Or were they unsuccessful in monetizing?
Growth Metrics
The acquisition efficiency of many Passion Economy platforms stems from the fact that many creators bring their own audiences. These growth metrics capture the extent to which that’s the case, as well as the flywheel of new creators leading to audience growth leading to more creator growth.
12. The flywheel: Percentage of fans that become creators, creators bringing new creators, fans bringing new fans
Successful creator platforms often have a powerful built-in growth engine. This can take the form of fans finding out about the platform by being a customer first, then signing up as a creator. Creators might also bring in new creators, which many platforms have encouraged through referral programs. In 2016, Patreon reported that 55 percent of its creators had heard about Patreon through another creator, either directly or through a social media mention.
13. Creator affinity and value
For any new Passion Economy platform, it’s necessary to identify creators who are most likely to be successful in monetizing their audience. This metric doesn’t measure health on your platform itself but can be an important signal in identifying which creators to target and onboard to your platform. That’s correlated with engagement and the affinity for the creator, rather than simply audience size. For instance, a creator that’s offering a course on fitness or diet may convert a much higher percentage of their followers to a paid course than a celebrity with larger following, but less engaged users.
In the media world, the Financial Times pioneered a metric called RFV, which captures the recency of the reader’s last visit, frequency of visits, and volume of content read, to target quality engagement, rather than sheer audience numbers.
14. Acquisition costs and channels for creators and users
How much does it cost to acquire creators and users? This metric is all about understanding the scalability and efficiency of different acquisition channels.
For creator businesses, the first few hundred creators are often acquired through doing things that don’t scale, like going to conferences or meetups. Later, the creator might layer on other acquisition channels, such as paid advertising, content marketing, and affiliate marketing.
For user acquisition: some platforms—marketplaces, in particular—take responsibility for demand-side acquisition, whereas many creator SaaS tools require the creators to develop their own audiences. If your creators have a huge, pre-existing fan base, this can lower or obviate user acquisition costs. In our experience, however, even large free fan bases aren’t necessarily easily translated into paid users. Here’s one example of how two online teaching entrepreneurs were able to turn a subject they’re passionate about into $2 million in sales.
Community-Related Metrics
The following metrics apply to platforms that are facilitating fan-to-fan interactions. Social features enhance stickiness and can help users get more value out of their purchases by enabling discussion and connection with like-minded individuals.
15. Intra-audience interactions
How much are audience members interacting with each other, in addition to the paid content? There’s no one-size-fits-all way to measure it, but examples of metrics to capture this include engagement rates (commenting, liking, friend-ing) with other users, the ratio of content contributed by the community vs. the creator themselves, etc.
16. Network effects
We wrote an entire blog about quantifying network effects. There are a few types of network effects in the creator world. For marketplaces that enable the discovery of new creators, it’s useful to measure the percentage of activity or transactions originating from within the network itself, as opposed to external sources.
For platforms that enable community interaction, it’s helpful to measure activity cohorts: ideally, users become more active (and derive more value from the community) when there are more fans to engage with. The power user curve also suggests the presence of network effects.
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The goal of Passion Economy companies is to help creative individuals monetize their unique passions and pursue new forms of work. These metrics can help provide a way to measure effectiveness and success over time. Through tracking these key measurements, startups can drive value for their creators, and in turn for their customers.